The number of consumers "rolling" their delinquency status on mortgage payments from 30- to 60 and 60- to 90 days past due peaked in July 2009, according to a new study from TransUnion. Approximately 24.4 percent of consumers who were 30 days past due on their mortgage payments in June 2009 became 60 days past due in July 2009, and nearly 37.6 percent of consumers 60 days delinquent on their mortgage payments became 90 days late in that same time.
"Consumers who are past due on their mortgages are always susceptible to going into more severe stages of delinquency. We found that this vulnerability was exacerbated during the recession as housing prices declined and unemployment increased," said FJ Guarrera, vice president in TransUnion's financial services business unit and one of the authors of the study. "Coincidentally, we noted that roll rates observed in the study reached their apex one month after the end of the recession as officially determined by the National Bureau of Economic Research. This timing is a clear illustration of how credit dynamics can lag economic dynamics: although we may have left the worst of the recession behind as we entered recovery economically, from a credit perspective we were just hitting the toughest period for consumer default."
One of the interesting insights gained from the TransUnion study was the relationship between consumers with home equity loans or lines of credit and increased mortgage delinquency through the recession. The study indicated that, under certain circumstances, the presence of one of these loans may contribute to higher roll rates during trying economic times. In March 2006, the national 30-60 mortgage roll rate was 12.56 percent for borrowers with home equity loans/lines and 17.16 percent for those without. However, by March 2009 the 30-60 roll rate had skyrocketed to 26.55 percent for borrowers with home equity loans/lines, while increasing to only 22.66 percent for those borrowers without.
Not surprisingly, the effect of home equity loans or lines of credit on roll rates was more pronounced in states with the most severe recessionary effects. In California during that same time period, 30-60 mortgage roll rates for borrowers with home equity loans jumped from 12.99 percent to 39.42 percent. California borrowers without home equity loans/lines experienced a smaller increase from 17.00 percent to 32.24 percent.
"This is yet another example of the dynamic nature of the lending markets, and how consumers react to different economic, financial and social forces. The presence of a home equity line used to be an indicator that a consumer had 'deeper pockets,' i.e. more equity and greater financial resources. Now it has become a red flag for higher risk due to over-leveraging," Guarrera said.
The study confirmed previous findings that mortgage delinquency roll rates were correlated to falling housing prices and rising unemployment over the course of the recession. Median existing home prices decreased 18.1 percent (from $207,700 to $170,200) from 12/2007 through 06/2009, while 30-60 and 60-90 mortgage roll rates increased 42.4 percent and 29.6 percent, respectively. The national 30-60 mortgage roll rate had been 17.12 percent in December 2007 and moved up to 24.38 percent by June 2009. The 60-90 mortgage roll rate increased from 29.00 percent to 37.59 percent in that same timeframe.
"Unemployment and home value depreciation were the two primary drivers of mortgage delinquency over the past three years, impacting both the ability and willingness of consumers to pay their monthly mortgage debt service. In areas where these effects were more severe, we saw a more rapid progression through the levels of delinquency and into foreclosure. Conversely, states with relatively stable home prices and less severe unemployment saw roll rates near or below the national level," said Guarrera.
An interesting dynamic was also found in early-stage roll rates in California. Current-30 roll rates in that state remained well below the national average throughout the course of the study, but roll rates from 30 days past due and onward were significantly worse in California than for the nation. For example, in 12/2007, 0.58 percent of current accounts rolled to 30 days past due in California while for the nation at large it was 0.79 percent. Yet the 30 to 60 roll rate in California that same month was 27.15 percent, while the national average 30-60 roll rate was only 17.12 percent.
"Serious mortgage delinquency in California is among the highest in the nation, at nearly twice the national average. We therefore did not expect the rate of accounts rolling from current payment status to 30 days past due in California to be lower than the national average. This means that Californians are actually less likely to enter delinquency with their mortgages, but once they do they are more likely to fall into severe delinquency—unfortunately, disproportionately higher monthly mortgage payments relative to incomes in that state make it far more difficult for California consumers to recover from delinquency. This type of insight can help lenders better understand the California market, and work more effectively with consumers to overcome financial hardship as they recover from the worst recession since the Great Depression," said Guarrera.
TransUnion's study looked at mortgage incidence roll rates for the United States as a whole, and select states in particular, between March 2006 and December 2009. This period encompassed the entire recession that began in December 2007 and ended in June 2009. For the purposes of this study, TransUnion used an industry-standard algorithm for calculating mortgage roll rates, namely the percentage of borrowers in a given delinquency status one month divided by the number of consumers with a delinquency status one step improved the prior month. The study specifically examined roll rates for non-delinquent accounts that went 30 days past due, accounts moving from 30- to 60 days past due and those accounts going from 60- to 90 days past due.
For more information, visit www.transunion.com/business.
